Step 2: Getting Financially Fit
In the first chapter of our first-time Homebuyers and Property Investors Guide, we helped you think through the WHY of buying a property.
• Are you buying a house or apartment to live in yourself?
• Do you aim to buy a property to let it out?
• Are your plans to buy and then flip the property ‒ i. e. sell it for a profit?
Your choice to buy to live, rent or flip will determine how you navigate the road ahead ‒ either as a prospective first-time home buyer or first-time property investor. The information and tools we provide going forward will, at times, be different for each journey, so be sure to take note of the sections relevant to you.
Keep an eye out for these symbols in future articles to know when a piece of content is specific to your journey:
First-Time Home-Buyer First-Time Property Investor
How financially fit are you? Your next step in property ownership will be to get yourself financially fit enough to take the plunge into the property investment arena. For this you will need to:
1. Obtain and understand your own credit report and affordability 2. Improve your credit score 3. Get out of debt 4. Manage your budget 5. Save for a deposit
Financing your first property purchase Most first-time property buyers don’ t have the cash in hand to pay to pay for a property upfront. The most common way to finance a property is to take out a home loan with a bank or mortgage broker. But these lenders need to know they can trust you to pay off your bond. The factors that will have a major impact on your home loan approval will be your current credit rating and profile, as well as your exposure to debt and affordability.
What is a credit rating? Before applying for a home loan, you will want to make sure that you stand the best chance of having your application approved. Lenders such as banks and other financial institutions will look at your credit profile and history( usually as far back as three years) to see how well you have handled credit in the past. They will then assign you a credit rating.
Your credit history is made up of your bank statements, information about your past and existing accounts, plus your current financial circumstances. Lenders will look to see how regular your payments on your cell phone account are, for example. They will want to know if you have a regular job, how many dependants you have and how well you are servicing other loans or debt.
What is affordability? When it comes to applying for credit, affordability is the amount of money you earn versus the amount that you owe: it is your repayment-to-income ratio. Credit providers look at your discretionary income( how much money you have after essentials have been paid for) plus your existing maintenance obligations and debts. They us this information to see if you can afford their product. This is to prevent you from becoming overindebted, something which is required of them by the National Credit Act( NCA).
1Know and understand your credit score and affordability
The point is to have a strong credit rating and good results from an affordability check. According to Credit Bureau, a good credit report can give you access to better interest rates, better credit limits and better credit terms, which can save you thousands. Knowing your credit score will also give you the chance to improve it over time.
To get your credit score and history, visit Credit Bureau online: www. creditbureau. co. za. Credit Bureau provides a 3 in 1 comparative credit report using credit reports from TransUnion( ITC), Experian and XDS. Insights from this report will help you build your credit status.
The NCA stipulates that you can get your credit report for free once a year. Use this report to check for errors, outdated information and ensure you haven’ t been a victim of identity fraud.
www. reimag. co. za MARCH 2017 SA Real Estate Investor 21